Understanding EOR

What is EOR?

If you are a foreign company looking to hire employees in the Philippines, you may have come across the term EOR, or Employer of Record.

But what exactly does it mean?

Simply put, an Employer of Record is a local company that handles the employment and administrative responsibilities for employees working for another company.

This can be particularly useful for foreign companies that want to hire Filipino employees but are not yet ready to establish their own Philippine company or representative office.

How Does an EOR Work?

Let us say you are a company based in the Netherlands, Singapore, the United States, or another country, and you have found a Filipino employee you want to hire.

You could establish your own Philippine entity and hire the employee directly.

But setting up a local company also means dealing with registration, payroll, employment contracts, government registrations, tax and statutory contributions, labor compliance, HR administration, and other local requirements.

An EOR provides another option.

Under an EOR arrangement, the local EOR provider becomes the employer of record for the employee in the Philippines and takes care of the local employment administration.

The employee works for your business and performs the role you require, while the EOR handles the local employment responsibilities.

In practical terms, the EOR can take care of areas such as:

• Employment contracts and employee documentation

• Payroll processing

• Withholding tax and payroll-related compliance

• SSS, PhilHealth and Pag-IBIG administration

• 13th month pay and other statutory requirements

• Employee benefits administration

• Leave and attendance administration

• HR documentation and employee records

• Assistance with employee concerns and employment-related processes

• Offboarding and final pay processing

The exact scope of services depends on the EOR arrangement.

Why Would a Foreign Company Use an EOR?

One of the biggest reasons is speed and simplicity.

A company may want to hire one or two employees in the Philippines first to test the market, support an overseas team, or establish a small remote team.

Creating a Philippine entity for only a few employees may not always be the most practical first step.

An EOR allows the company to start hiring while having a local partner handle the employment administration.

For example, imagine a software company in Europe that has found a highly qualified Filipino developer.

The company wants the developer to work exclusively for them, but they do not yet have a Philippine office.

Instead of immediately setting up a Philippine company, they may engage an EOR provider to facilitate the local employment arrangement.

The foreign company can focus on managing the employee's work, projects, performance, and day-to-day responsibilities.

The EOR takes care of the local employment administration.

Does the Employee Work for the EOR or the Foreign Company?

This is one of the most important things to understand about an EOR arrangement.

The EOR is responsible for the formal employment relationship and local employment administration, while the foreign company remains responsible for the employee's actual work and business functions, subject to the structure and terms of the arrangement.

The arrangement therefore needs to be properly documented.

It is not simply a matter of putting an employee on another company's payroll.

Philippine labor regulations place significant importance on the actual nature of an employment or contracting arrangement. DOLE Department Order No. 174, for example, regulates contracting and subcontracting arrangements and prohibits labor-only contracting.

This is why choosing an EOR provider should involve more than comparing administrative fees.

The structure, documentation, responsibilities, and actual working arrangement all matter.

EOR vs. Setting Up Your Own Philippine Company

So, which approach should a foreign company use?

It depends on what the company is trying to accomplish.

Option 1: Establish a Philippine Entity

A foreign company may establish its own Philippine entity, such as a subsidiary, branch, or representative office, depending on its intended activities and applicable regulations.

This gives the company its own local presence and allows it to employ people directly.

However, it also means taking responsibility for the entity's registration, accounting, tax, payroll, HR, compliance, and other administrative requirements.

This may make sense when the company is planning a longer-term and more substantial presence in the Philippines.

Option 2: Use an EOR

An EOR may be more practical when the company wants to hire employees in the Philippines without immediately establishing its own entity.

This can be useful when:

• You are hiring your first employee in the Philippines

• You want to test the Philippine market

• You are building a small remote team

• You need Filipino talent for an overseas operation

• You want to expand your team without immediately establishing a local company

• You want local assistance with payroll and employment compliance

The important thing is to understand that an EOR is not necessarily a replacement for establishing a Philippine company.

For many businesses, it can simply be a more practical starting point.

How Much Does an EOR Cost?

EOR pricing normally consists of two major components:

1. Employee Cost

This includes the employee's salary and applicable employer costs, such as statutory contributions and other benefits.

2. EOR Service Fee

The EOR provider charges a service fee for handling the local employment administration and related services.

The actual cost will depend on the employee's compensation, benefits, the scope of services, and the EOR provider.

When comparing EOR providers, it is important to look beyond the monthly service fee.

A lower fee does not necessarily mean a lower overall cost if important HR, payroll, or compliance services are excluded.

Can an EOR Handle Payroll and Government Contributions?

Yes.

One of the main benefits of an EOR is having a local partner handle the administrative requirements associated with employment.

This can include payroll computation, withholding tax, and statutory contributions such as SSS, PhilHealth, and Pag-IBIG.

The EOR can also help ensure that employment-related requirements are properly documented and processed according to applicable Philippine regulations.

This is particularly useful for foreign companies that may not be familiar with the Philippine payroll and employment system.

Is EOR the Same as Outsourcing?

Not exactly.

Outsourcing generally means hiring another company to perform a particular function or service.

For example, a company may outsource accounting, IT support, customer service, or payroll processing.

An EOR, on the other hand, is primarily an employment and HR administration arrangement.

The distinction is important because the legal and operational structure can be different.

For companies considering an EOR arrangement in the Philippines, it is important to make sure that the arrangement is properly structured and compliant with applicable labor regulations.

When Does an EOR Make Sense?

There is no single answer that applies to every company.

An EOR can be particularly useful when you want to start small and scale gradually.

For example:

You have identified three excellent Filipino employees.

You are not yet sure whether you will eventually build a 20-person team.

You don't necessarily want to establish a Philippine entity immediately.

An EOR can provide a way to begin with those employees while you evaluate your long-term plans.

If your Philippine operations eventually become substantial, you can then consider establishing your own Philippine entity.

In other words, an EOR can be part of a company's market-entry strategy.

EOR in the Philippines: What Should You Look For?

If you are considering an EOR provider, I would recommend looking at more than just the price.

Consider the provider's:

• Understanding of Philippine employment regulations

• Payroll and tax compliance processes

• Experience with foreign companies

• HR support capabilities

• Handling of employee benefits and statutory contributions

• Employment documentation

• Data and employee record management

• Process for employee separation and final pay

• Ability to support you as your Philippine team grows

Most importantly, make sure you understand who is responsible for what.

A good EOR arrangement should make responsibilities clear between the foreign company, the EOR provider, and the employee.

EOR Is More Than Payroll

It is tempting to think of EOR simply as a payroll service.

But it is more than that.

Payroll is only one part of employment.

Hiring an employee in the Philippines also involves employment documentation, statutory compliance, benefits, leave administration, employee records, HR processes, and eventually separation or termination.

This is where having a reliable local partner becomes important.

At Candilosas Business Consultancy, we provide EOR services for foreign companies that want to hire employees in the Philippines without immediately establishing their own Philippine entity.

Our goal is to make the process simpler for the foreign company while ensuring that the local employment administration is handled properly.

We can assist with employment administration, payroll, statutory contributions, tax compliance, HR administration, and other related services based on the needs of the client.

And if your Philippine operations eventually grow to the point where establishing your own entity makes more sense, we can also assist with the transition and provide accounting, tax, payroll, HR, and administrative support.

Thinking of Hiring in the Philippines?

If you are a foreign company considering hiring your first employee in the Philippines, you don't necessarily have to start by building a large local operation.

An EOR arrangement may give you a practical way to get started, understand the Philippine market, and build your team while keeping the local employment administration manageable.

The important part is choosing the right structure and having a local partner who understands not only payroll, but also the broader requirements of doing business and employing people in the Philippines.

If you are considering hiring employees in the Philippines, Candilosas Business Consultancy can help you evaluate your options and determine the most practical approach for your business.

About the Author

Royce is the founder of Candilosas Business Consultancy. He is an expert in helping global companies set up business in the Philippines. With over 15 years of experience in accounting, tax, compliance, finance and business operations, he developed a passion for building systems that help organizations operate more efficiently. He believes that great results are achieved when capable people are empowered by the right technology and supported by strong processes. He is also a Certified Public Accountant.

Want to connect? You may email sales@candilosas.com.

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